NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- which troubled retailer is really kaput, and
- recent sector rotations.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Which of These Cats Is Really Kaput?
Posted at 11:28 p.m. EST on Thursday, Feb. 27, 2014
Once owned a cat named Komag, named after a second-rate disc drive company during the heyday of personal computers. She was cute as can be, but it ended up bad for her as she got run over by a truck, and darned if there wasn't some hope for a second when her body bounced around the double yellow line.
Yes, dead cats -- and I love cats and used to have seven of them -- do bounce.
Let's take them one at a time. The best of the prospects is Best Buy. Why? Because it was in comeback mode with new management before it got derailed by a couple of tough months of sales. Best Buy is what I call a broken stock, not a broken company, as the multiyear turn that includes shutting poorly-performing stores, improving service and increasing selection at prices that are often competitive to those of Amazon.com (AMZN) continues apace. The turn isn't pausing, the stock just got too high.
I like the long-term prospects because it is connected with housing and housing remains a strong tailwind for the industry as we found from a host of hard-good retailers earlier this week.
[Read: J.C. Penney Is Changing Course]
J.C. Penney's a tough call. The company looks like it has finally gotten through the trauma of the de-Johnsonification (that's the stripping of every single darned thing that Ron Johnson did to almost bankrupt the company). Returning CEO Mike Ullman has stabilized the operation and there seems to be enough money in the till to continue that stabilization. Here's the issue. In the end, J.C. Penney was, even in its best days, a so-so retailer under Ullman. Guess what? Now that all of that fancy stuff of Johnson's is gone and Ullman's returned the place to form, you just have a so-so retailer.
Can a so-so retailer triumph in a world where even well-capitalized outfits like Target (TGT) and Wal-Mart (WMT) are struggling, especially because Penney's life blood are private brands of no real renown and big markups followed by promotions? Who needs that? I say the stock can rally, the company's not dead, but we have so many quality retailers out there. Penney's is just a trade.
Now, let's talk about the most difficult one of all, Sears. We all went to Sears when we were younger around our town because it was reliable, solid and inexpensive. But it lost its way and ever since is merger with Kmart you really do have a merger of equals that are equally mediocre.
I know that Sears has done some remarkable things with its club strategy, but it is a second-rate Costco (COST) where there's only room for one Costco. It's tried to jazz up its stores with partnerships like those with Nicki Minaj and Adam Levine, but it is painful to even think that they might shop there, isn't it?
It's been slowly breaking itself up as we wait for a turn. But funny thing about the other companies in Sears' space: they have all turned. This one hasn't. Now it's telling us that it's going to sell Lands End to bring out even more value. Wait a second, Lands End is probably the best thing Sears has going. This company's selling winners to fund losers and that's a sucker's play when it comes to stocks and a sucker's play when it comes to retail. Of the three, this is the one that looks most like the cat that has at long last run out of lives.
Going With the Sector Flow
Posted at 3:56 p.m. EST on Wednesday, Feb. 26, 2014
The money has to come from somewhere. We know that there hasn't been a lot of new money coming into the stock market since the year began. In fact, bond funds, bond ETFs and anything fixed-income have been the hottest aisle in the financial supermarket. You would think there's a buy-one-get-one-free thing going on.
[Read: Citigroup Burned by Mexico Fraud]
But when you see stocks like the retailers fly up today after many of the most aggressive momentum stocks have roared, thank heavens some of them are taking a breather today. You have to understand that that the fuel is not being added to the fire; it's just being taken from a couple of formerly hot spots and being put into others.
And that's what is happening to not one but two groups right now, and it's a fascinating thing to see -- unless you are stuck in them. I'm talking about the consumer-product goods and the banks. Both have their own woes and we have to deal with them head on.
First, the banks. We know that they need to have interest rates go a little higher than they are because they aren't earning enough off your deposits to get that net-interest margin humming. That, not new mortgages or fewer bad loans, determines how high those stocks can go.
Now something more insidious is happening. You pick up the paper and see the malfeasance -- "Senate Says Credit Suisse Hid Billions" -- right there on the front page of the business section of the New York Times. Or how about the daylong analyst meeting for JPMorgan Chase (JPM)? What was the big takeaway? For me, and my charitable trust, it's that the bank has to add 3,000 more compliance people on top of the 7,000 hired last year. Those people are a deadweight loss. And then Bank of America (BAC), one of the cheapest stocks the trust owns, discloses new investigations that could raise legal bills again. Yes, the group is cheap, but who can take this pain? Obviously not the departing shareholders, no matter how cheap the stocks may be, and they are historically.
Then there are the other stocks, the consumer-packaged goods, the foods, the beverages, the shampoos and the soaps and the drugs. Money's pouring out of these stocks like there's no tomorrow. Why? First, their yields simply aren't that compelling vs. potentially rising interest rates, rates that could be around the corner given how consumer spending may have held up more than we thought.
Second, did you see the front page of the New York Times? "Obesity Dropped 43% Among Young Children In Decade"? How did that happen? How about a revolt against fatty snacks, sugary cereals and cookies and sodas of all sorts, not to mention the processed foods that many people are rapidly concluding revolve around a corrupt food chain? You think it is happenstance that WhiteWave Foods (WWAV), the all-natural and plant-based food company on Mad Money today, is up 22% this year while almost all the "conventional" food and beverage stocks have been hammered? Does it really shock you that Chipotle (CMG) is going to $560 from $316 in the last year while the "Farmed and Dangerous" stocks have been left far behind?
Meanwhile, look at the profits CVS (CVS), Walgreen (WAG) and Rite-Aid (RAD) are making on their store brands, made mostly by value-winner Perrigo (PRGO). That's right out of the hides of all of those big, heavily promoted name brands that suddenly seem to have lost their edge courtesy of the new frugality I wrote about in Get Rich Carefully.
Chicanery, dividends too low to compel us, a food chain we don't trust and store brands we do trust -- these are the reasons why the turnstiles are in motion, and I can't expect them to reverse any time soon.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JPM and BAC.